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NWE naphtha cargoes at 4-year low on weak crude, regional oversupply

Delivered open-specification naphtha cargoes in Northwest Europe tumbled to a four-year low Tuesday as the market tracked weakness in the crude oil complex and regional oversupply continued to prove difficult to clear.

Delivered open-specification naphtha cargoes in Northwest Europe tumbled to a four-year low Tuesday as the market tracked weakness in the crude oil complex and regional oversupply continued to prove difficult to clear.

The CIF NWE cargo market was assessed by Platts $23/mt lower on the day at $656.75/mt, the lowest level since August 25, 2010, when it was assessed at $639.50/mt.

The move was in line with an over $2/barrel fall in the price of Dated Brent, which was assessed at $82.300/barrel, the lowest level since November 23, 2010.

Despite lower crude values, naphtha crack swaps -- measuring the relative value of the product to crude -- were little changed on the day. The November crack swap was assessed 17 cents higher at minus $8.63/barrel, while December rose just 5 cents to minus $8.45/barrel.

The December crack swap was seen trading even lower early Wednesday, at minus $8.80/mt.

"It is the markets' way of saying naphtha needs less production, that is why the cracks are so low," a source said.

The November/December contango structure subsequently narrowed by $1/mt to $5.75/mt.

Storage plays have been one of the few outlets for the overhang in the physical market, but some sources saw this as delaying the supply problem further ahead, as low ullage levels in Amsterdam-Rotterdam-Antwerp would restrict further injections.

"It is going to be interesting when the contango flattens back out," a source said, adding that a sudden offtake from storage volumes could further depress the market should the structure flip to a backwardation.

In addition to external downward pressures, the European naphtha market remains depressed by regional oversupply and an arbitrage to Asia that, according to sources, is currently difficult to work.

"It is fundamentally oversupplied and other regions are not particularly strong," a source said. "Premiums in Asia are not improving, it is still difficult for people to put arb cargoes together."

Thin petrochemical steam cracking demand in the face of cheap LPG has also stripped some of the core demand from the market.

"Demand across all grades is fairly weak, there is a long list of open spec," a source said.

--Iain Stevenson, iain.stevenson@platts.com --Edited by James Leech, james.leech@platts.com

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